The intent of this scheme is to bring new people into equities and that means if you have ever bought any shares or traded in derivatives then you are ineligible for the tax benefits under this scheme.

They are going to look at new investors on the basis of the PAN number so you are only eligible in this scheme if there have been no prior equity or derivative transactions in the Demat account linked to your PAN number.

Your taxable income should also be less than Rs. 10 lakhs in order to be eligible for this scheme. If your taxable income is more than that then you don’t qualify for this scheme.

How do you get the tax RGESS benefit?

In order to get the tax benefit, you have to invest in one or more of the following:

Stocks listed under the BSE 100 or the CNX 100

PSUs that are categorized as Maharatnas, Navratnas or Miniratnas

FPO of PSUs mentioned above.

IPO of PSUs whose turnover is not less than Rs. 4,000 crores in the last three financial years.

ETFs and mutual funds who have RGESS securities as their underlying.

The maximum that you can invest for the purpose of this tax benefit is Rs. 50,000 and you can do so in installments in the financial year.

What is the tax benefit under RGESS?

You get to deduct half of the money invested under RGESS from your taxable income and thereby reduce your tax liability. So, if you invested Rs. 50,000 in eligible securities under this scheme then you can deduct half of that – Rs. 25,000 from your taxable income, and if your tax rate is 20% then you save Rs. 5,000 (20% of Rs. 25,000) from your taxes.

Is there a lock in period under RGESS?

There is a three year lock in period under RGESS which is further broken out into an initial blanket lock in period of 1 years which means you can’t trade in your RGESS securities within one year of claiming the tax benefit.

After the initial one year, you can trade in your securities provided you maintain a certain investment level. This investment level is dependent on the value of your shares at the time of the sale.

So, say you invested Rs. 50,000 at the beginning, and at the time of the first sale, the value of your investment is still Rs. 50,000 then you will need to show investments worth Rs. 50,000 in 270 days out of the 365 or 366 calendar days.

However, if your investment was worth only Rs. 25,000 when you initiated the sale then this is the amount you will need to maintain for the 270 days.

If your investment appreciated and is now worth Rs. 1,00,000 then you will only need to maintain investments worth Rs. 50,000 to be compliant with the scheme.

If you fail to do any of this then the tax benefit will be withdrawn however I’m not quite sure how they are going to implement this or even the initial blanket lock in period for that matter.

As you can see this is a fairly complicated scheme which won’t be useful for many people and wherever applicable will offer limited benefits. I’ll be really surprised if it does well.

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Companies await these notifications before they launch any such product like it happened in case of Tax-Free bonds. We carried the post on Tax-Free Bonds notification. This notification carries all the terms and features regarding RGESS.

So far they haven’t declared the list of eligible mutual funds and are still working on it but they did say that funds that invest in BSE 100 stocks or CNX 100 stocks will be eligible for this. I don’t know right now what those mutual funds are but I will update this post or create a new one once the list comes out.

hi, sorry for asking a stupid question but please do answer at the earliest – which bank do I need to go to get this, Can I go to any bank, say SBI, open a DEMAT account there and ask them for a RGESS form, fill the form and submit it – that’s it right, or am I missing something.

You get this either by investing in shares or mutual funds, so going to a bank will not help you. If you have ever bought share or mutual funds earlier then that’s the way to get advantage of this scheme.

I have invested Rs 50,000 in equity ETF’s to avail deduction under RGESS (50% of 50,000).However, the condition of taxable income should be less than 12 Lakhs, has me confused. Does taxable income include ‘EXEMPT INCOME’? I have received gifts/inheritance amounting to some Lakhs which I hace shown under EXEMPT INCOME. Will this high EXEMPT AMOUNT nullify the RGESS Deduction which I have claimed? Please clarify & oblige.
In case this was not allowed, normally ITR-2 displays ERROR WARNINGS. But while filling up the Excel sheet offline, no such warning was displayed.